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This meetup was held at The Wine Spot in Cleveland Heights, which recently began accepting bitcoin payments this year.

The first few people to arrive were a local couple who had read about The Wine Spot in the recent Heights Observer article. They were not too familiar with the technology, but had been reading all about it in the press, especially in light of the MtGox bankruptcy. They were intrigued, as we all are, and decided to stop by our meetup to learn more. We discussed several topics, including the history of Bitcoin, where it fits in the world of technology, and how it applies to a small business in their own community, such as The Wine Spot.

Using a digital wallet, a customer purchases a growler of beer using bitcoin at The Wine Spot. Photo credit: Rebecca E. Groynom

Several familiar faces from the previous meetup also attended, some traveling as far as Westlake and Youngstown. Several new faces showed up, all quite excited to be able to have a nearby place where they can gather and chat about Bitcoin. New to this meetup included a lawyer, a bitcoin miner, and a software developer, all interested in a wide variety of Bitcoin related topics. Legal and regulatory issues are often brought up, as this is an important issue on the minds of Bitcoiners from almost every aspect of the technology.

Another attendee was Frank Revy, owner of Coffee Proper in Lakewood Ohio. Frank started accepting Bitcoin at his business last year. He has some great ideas about decentralized digital currencies like Bitcoin, and community currencies.

A special thank you to Elizabeth Ploshay, Manager of Communications for Bitcoin Magazine and board member of Bitcoin Foundation. Elizabeth sent us complimentary copies of Bitcoin Magazine to distribute to participants of this meeting.

I attended my first Bitcoin Meetup here in Cleveland, Ohio. The meeting took place at David’s Grill and Bar, a very nice place located in Northpoint Tower, a commercial office building on the northeast corner of West 9th and Lakeside. David’s started accepting Bitcoin in 2013. David’s has a bar and restaurant, and this may be one of those hidden watering holes I may have to frequent during my future jaunts downtown.

There were about 20 people who attended throughout the evening, representing hobbyists, business owners, bitcoin miners, and both experienced and new digital currency enthusiasts.

Photo Credit: Rebecca E. Groynom

The conversations were lively. We discussed consumer bitcoin technology, regulatory affairs, legal affairs, public opinion, and many other areas of interest. The owner of The Wine Spot, a Cleveland Heights business which recently implemented Bitcoin payment technology, presented his business experience learning about and implementing Bitcoin at his store.

2-Factor Authentication (2FA) is becoming a prevalent, and easy to use technology for securing your most precious online belongings. 2FA requires just as the name suggestions, 2 methods of login to access your online resources. In the case of most online websites, this usually means a combination of:

– A username and password

Plus

– A random, numerical authentication code sent to phone, email, or synced with a Smartphone app.

Without both of these, access will not be granted.

Usernames and Passwords

We are all familiar with usernames and passwords. This has been the de-facto standard authentication mechanism since, well, probably forever. But, this method alone has a variety of security related problems, including:

– Usernames and passwords can be shared, and thus distributed without the original owners consent.

– Usernames and passwords can be hacked. Unauthorized users accessing secured resources can block authorized users, or even be viewed indefinitely by prying eyes so long as the password does not change.

– Usernames and passwords provide authorization to secure resources, but do not prove that the person accessing these resources is the correct person – just that this person happens to have the correct username and password.

Where 2-Factor Authentication Fits In

What if, whenever a login attempt was made to one of your secure resources, a text message was sent to your phone with an additional, random code which would also need to be entered? This now ties a username and password to an actual device owned by the account holder. If a hacker has the correct username and password, but not access to the physical device, their attempt to access this secured resource would be denied.

Two common and widely supported Smartphone apps that manage 2-Factor Authentication are called Google Authenticator, and Authy. With these apps, instead of the website sending a text message, the user opens one of these apps to gain access to the randomly generated code. An example of this would be a typical 2FA enabled Coinbase login:

1. Enter username and password at coinbase.com.

2. Open Google Authenticator or Authy app, chose the Coinbase entry.

3. Enter the numerical code from the app at the Coinbase login screen (this code changes every 20 seconds).

4. Gain access to your Coinbase account.

As you can see, without the physical device, access to Coinbase would not be available.

Many financial institutions, email platforms (Gmail included), social media sites, and other secure web services offer 2-Factor Authentication. It is often an optional component, disabled by default, and can be configured in your user profile settings for said service.

CoinNEO’s Recommendation

CoinNEO recommends the Authy app for 2FA. While Google Authenticator works just fine, Authy seems to provide better backup and restore functions in case your phone is lost or stolen.

CoinNEO also recommends enabling 2-Factor Authentication for any website you use where personal information, especially financial information, is stored. If your financial institution’s website does not currently support this technology, send them an email expressing your interest in seeing this as as feature in the future.

Here is a video Authy provides that describes 2-Factor Authentication:

There are various methods to acquiring bitcoins. Among the most popular are 1) selling merchandise for Bitcoins, 2) Buying bitcoins from a brokerage, and 3) Trading other currencies for bitcoins on a currency exchange.

Selling Merchandise

Anyone can sell merchandise for bitcoins. For many, this can be an easy and low cost method for acquiring bitcoins, although it requires quite a bit of care determining how Bitcoin transaction processing can safely and securely fit into the billing structure. Contact CoinNEO for help with these determinations.

Brokerage vs Exchange

Brokerages, such as Coinbase, are a fast and convenient way to buy and sell bitcoins. Brokerages act as a middleman, buying bitcoins in bulk and selling them to customers. Brokerages charge fees for this service, just as any currency broker would.

Exchanges, such as CampBX, MtGox, and BTC-E, offer direct buying and selling between currencies. Once an account is funded, Exchanges allow for quick buying and selling of currencies within the platform, without the need to first withdraw to cash in order to realize gains and losses in local currency. Trading fees are lower than brokerage fees, but funding and withdrawing from an exchange to local currencies may take considerably more time and may be far more expensive.

Funding A Brokerage

Brokerages offer the smallest barrier to entry into the Bitcoin marketplace. Coinbase, a leading US brokerage, accepts these forms of funding methods:

1. Automated Clearing House (ACH): This is the most common funding system for brokerages. This links a US checking account and routing number, allowing users to buy BTC with their USD.

– Transactions typically take 2-5 business days to complete.

– A small ACH fee may be included with each transaction.

2. Credit Card: Credit cards can be used as an additional verification method, allowing for same day bitcoin purchases while using ACH.

Withdrawing From A Brokerage

To transfer BTC back to USD, the BTC is sold at current market value in USD, and deposited as USD into a US checking account via ACH.

– ACH withdrawal process may take 2-5 business days.

– A small ACH fee may be included with each transaction. Coinbase charges a 1% brokerage fee on the total amount, plus $0.15 fixed fee for the ACH deposit.

Depositing to An Exchange

Exchanges are far more expensive to deposit and withdraw money from, but offer lower trading fees than a brokerage. Exchanges would be more useful for those looking to conduct a large volume of trades (day trading, for instance), and to trade bitcoins between other physical and digital currencies. CampBX, a leading US Exchange, offers the following funding methods for US users:

1. Money Orders: Money orders can be mailed to Exchanges in order to fund an account.

2. Personal Checks: Personal checks can be mailed to Exchanges in order to fund an account.

Withdrawing From An Exchange

Withdrawing from Exchanges are considerably more time consuming and expensive than using a brokerage. CampBX offers the following withdraw methods:

– ACH: While not available for deposits, CampBX make ACH available for withdrawal for a $2 fee.

– Domestic and International Wire Transfer: Wire transfer may be initiated for a fee of $20 domestic, and $35 international.

– USPS Money Order: Money orders may be issued for a $20 fee for up to $1,000 withdrawal.

CoinNEO recommends Coinbase for buying and selling bitcoins for regular, every day use. They allow for a minimum purchase of $0.10 worth of bitcoins (remember, bitcoins can be purchased in fractions). Coinbase is very easy to sign up for and use, and even offer $100 in instant currency for new users. Once verified with a bank account and credit card, Coinbase offers immediate buys, and users can have access to and use their bitcoins right away. The fees are reasonable, and their tools are becoming more and more sophisticated as time goes on.

I decided to submit a Bitpay application for CoinNEO. I wanted to see how the application process worked, and get my hands on the merchant software tools so I can better educate myself about the features and functionality of Bitpay.

I assumed this would be a pretty fast process. Indeed, the application submission is quite easy and only takes a few minutes. I completed the application on November 18th. However, I have been waiting for several weeks for approval. I emailed Bitpay about this delay and they responded on December 3rd, stating they are simply overwhelmed with applications. I am not sure how long I will have to wait for approval.

If you are thinking of using Bitpay for your business, you may want to at least begin the application process early. It is not a 5 minute process like many believe it is. For me, it has been about 3 weeks and counting.

Update 12/15/2013:

Bitpay application process complete! I received my account info and it conducted a test transaction within minutes. This has a great feature I see already:

I can set up a payment page for my business. I enter the dollar amount and order number, and it then generates a QR code for the customer. Once the customer sends the payment, the page callback tells us that the payment has been received. This is a feature that is not built in to Coinbase’s merchant payment page. With Coinbase, the order confirmation is sent through email, or can be see in the merchant’s Coinbase account, but not right on the payment page upon completion.

Update 1/15/2014:

One day! A CoinNEO client filed a Bitpay application and it was approved in one day. Fantastic news, I think my personal experience may have been an anomaly.

The question about how to handle Bitcoin refunds is up for debate. Bitcoin volatility will no doubt increase the chances of the following issue becoming a problem for merchants who decide to accept Bitcoin. Here is a scenario I worry about:

Scenario: I am a merchant, and I sell a $5 item (.007 BTC current market rate). The customer comes back in 2 weeks and wants to return the item, and return it for .007 BTC. However, BTC has increased 50% over the past 2 weeks. So now, .007 BTC is worth $7.50.

What are the customer’s rights, and what are my merchant rights concerning this refund? Can I refund the customer $5 at the current BTC rate, or do I have to refund .007 BTC?

If this needed to be mitigated in court, what are the arguments for both parties? This tactic could be used to swindle both customers and merchants.

For now, in America at least, it seem the consensus is that merchants should include in their TOS that all sales and refunds are in USD. While you can advertise that you accept Bitcoin as a payment option, all items should be advertised for sale in USD only. If a customer buys an item for $5, then the refund will be for $5, regardless of what the current Bitcoin exchange rate is. However, if you advertise items for sale in BTC rather than USD, you will most likely be hard pressed to refund the item in BTC as well. If BTC does indeed continue to skyrocket, this could pose a major problem to retailers. It would be advisable to discuss this with your personal legal and accounting council in greater detail.

UPDATE 12/8/2013: I have realized now that it is almost impossible to perform a 1 for 1 refund if you are trying to issue a BTC refund, but at the current USD rate. For instance, I recently sent $1 to myself between 2 of my Bitcoin wallets. When the transaction was complete, the actual USD amount was $1.13. This was probably due to a 13 cent volatility between the time I entered $1 and the time I hit Send. If I want to return the $5 to a customer and have the Bitcoin network do the calculation, one of us is going to get the short end of the stick – every little penny adds up.

I still am not sure what the legal, or even ethical commentary should be on this matter. For now, I have posed this question to Bitcoin and Legal communities and will update as I receive feedback.

UPDATE 12/12/2013: After speaking with many people about this, from merchants, to individuals, legal professionals, and accountants, it seems the best way for a small business to handle this is to issue USD refunds at the current BTC rate. As one person explained, regarding the volatility of the bitcoin markets, it is no different than selling someone a piece of art. If I sell someone a piece of art for $100, and the artist’s work skyrockets in value 2 weeks later, that does not give the customer a right to return the art at the higher value. The transaction is understood to be in USD at the time of transaction, not matter what other processes are involved. Yes, it would be advisable to make this clear in your TOS, or even during the sale of the items, but this is the solution which would mitigate the most amount of risk for both the merchant (if BTC rises in value) and the customer (if BTC falls in value).

UPDATE 1/9/2014: Overstock.com began accepting Bitcoin today. Their return policy, while not stated on their website, is to issue store credit in USD for all Bitcoin purchases. This differs from their return policy, which offers full refunds in certain cases. Still, refunding in current USD equivalent seems to be the favored solution by the community.

The European Banking Authority released a document on December 12, 2013, issuing a warning about virtual currencies. The document, “Warning To Consumers On Virtual Currencies”, drew many sensationalistic media headlines.

To me, this EBA release is a very important document, stating the importance of personal responsibility when endeavoring in virtual currencies like Bitcoin. This was sensible, friendly advice from the EBA and it is a good, short read for everyone involved in or considering to be involved in virtual currencies.

3rd party payment networks, such as VISA and Paypal, are pretty speedy when it comes to transaction validation. The customer is approved or declined in a matter of seconds. With Bitcoin, this is not entirely the case.

Because Bitcoin does not rely on 3rd party trusts, validation is performed by the Bitcoin network. When someone sends a Bitcoin payment, it must first be confirmed by several computers on the Bitcoin network as a valid transaction. Unfortunately this process can take hours. Naturally, a merchant cannot have a customer waiting around for hours for a payment to be validated.

Typically, a merchant will see they have a payment almost immediately, but it will be flagged as pending and it will show “0 Confirmations” at first. So, the merchant knows they have a payment, but it has not yet passed validation and they do not have access to the funds. Slowly, once 6 confirmations have occurred, the payment process will be complete. The merchant can watch this transaction and see the confirmations increment during this time.

There are many theories on how to perceive this. For one, trust in Bitcoin. Even with 0 Confirmations, the transaction has occurred and cannot be reversed or cancelled by the sender. One of the only ways for the payment to fail is if the sender initiated a Race Attack. With a Race Attack, the sender would have to double-spend their bitcoin, with a higher mining fee, and hope it propagates through the network before the first payment. Then, the confirmation system would validate the 2nd payment, and fail the first payment. This seems like a very highly unlikely scenario, incredible expensive for the attacker. Even BitPay CEO Tony Gallippi is on record about this unlikeliness of this event. With 1 approved confirmation, the likelihood of this being a fraudulent transaction is reduced almost to nothing. So, do you have to wait for all confirmations to trust that this will be a valid transaction? Is 0 enough? Is 1 enough? This is a risk factor, and would be up for you to decide in relation to the type of business you are conducting.

Bitcoin is a digital currency, built on the concept of Cryptocurrency, which was developed as a tool for Internet-Age commerce. The best resources describing Bitcoin in detail are the Bitcoin.org FAQ and We Use Coins. These are recommended resources for everyone interested in learning more about Bitcoin, and especially those seriously considering using Bitcoin for commercial purposes.